Starting of a new venture may seem like an easy affair; and it is when done correctly! Why do I emphasis on “Correctly”? One of the biggest mistakes aspiring businessman makes when starting a new business is not giving complete thought to the future benefits and problems the chosen Business Form may fetch. These are the important things you should know before starting the Business.
A business can be owned and managed in varied formats. Each form of Business has its own merits and demerits. Choosing the right form of business is a very crucial step as it dictate the control, risk and responsibility you will have in the Business.
So, by the end question remains the same on how to avoid picking the wrong format of business.
The key is discovering the perfect Business Structure for your venture. Here is how you can achieve that.
DECIDING THE RIGHT FORM OF BUSINESS FOR YOU!
The choice of Business Form should be made after giving serious thought to the deciding factors. So how to verify the form of business you have chosen is right for you? The answer is easy; you can do a “Compatibility Test” to confirm it!
What is Compatibility Test?
Compatibility Test is basically an analysis of rapport between “The Business” and “The Form of Business”. In other words; it is deciding whether the form of Business you have chosen is apt for the type of business you want to run. Still Confused? Let me explain in detail.
“The Business” :
It means the nature of your proposed venture and includes various supporting factors which are responsible for shaping the future of your Business. Some of these Deciding factors are:
Nature of Business Activity:
This is the most important factor for deciding the appropriate Business Form. It includes the Business Activity, necessary investment in the Equipment & Infrastructure, Funds and Skilled personnel etc.
Term of Business:
The duration of your venture. You may be starting new business to do a particular project. In that case the term of your business venture will be a shorter one. You may also want to start new business with a long term commitment.
Volume of Business:
When you are starting New Business; you have the general expectations of how it will fare. This includes how much big expansion do you see yourself making. Deciding whether you are planning to stick to the local market or do you aspire to serve in national or International Market. So, you should choose a Business Form which is compatible with your scale of operations.
Control over Management of Business, Risks & Liabilities:
It means deciding whether you want to have absolute control over the Business or whether you are open to the idea of sharing control with someone else. Also, are you prepare to take the risk and bear liabilities alone or not. These factors should be given highest importance while choosing Business Format.
- Finance: Finance is the lifeline of any Business. Determining if you can self-finance your business or if you need external financial aid will be a crucial factor in deciding correct business form.
Marketing & Branding of Your Business:
Nowadays, Business Form itself has the potential to be the face of your Business. Analysing if your Business will need Branding factor will be the first step. Depending on the answer you can assess various Business Forms.
Taxation & Legal Compliance:
Now, you will say why do I have to worry about it so early?! but let me tell you Tax matters are never too early!! At that point;You will have other important tasks demanding your attention. However, understanding the future Tax liabilities and Legal compliances at an early stage will give you a Bird-eye view on the matter.
Government schemes/ Policies:
Sometimes Government launches a scheme/Policy which can be beneficial to some businesses. So, ascertaining whether you can take advantage of certain Government Scheme under certain business form will be a vital deciding factor.
“The Form of Business”
is that kind of organization structure that you have registered your business with. Simple examples are Sole Proprietorship, Partnership Firm, LLP, Private or Public Company etc.
How to conduct Compatibility Test?
Deciding “the Business and its factors” will lead you to the suitable “Form of Business”. Sometimes it may give you more than one suitable “form of Business” options. Now, at this stage it is up to you to study the rapport between the “Business” and suitable “Form of Business”. In other words; you will have to deliberate and decide under which “form of Business” you will gain the benefits of most “Business factors” and will sacrifice nil or least factors. Once you have done that; you will know the best Business Form for you!
Hope this post has helped you in some way. If you like it please feel free to leave a comment and/or share!